Enlightenment Through Understanding

The Daily View: Economic Data and Wages

Better get that computer science, physics, math or econ degree. Those are the people making the $$ in this recovery. Smart people rule the world.

As shown above, real wages tend to rise during crisis such as the banking problem in 2008 & 2009 and again in 2011 during the Greece & debt ceiling scare. Inflation lagging wages is an indicator the economy is running smoothly, according to the neo-classical framework. The left, however, wants wages to rise too much, hurting profits and causing inflation. A research paper shows that raising the minimum wage from $7.25 an hour to $10.50 will cost fast-food restaurants 2.7%, which is the same as a Big Mac rising from $4.5 to $4.6; it’s not unreasonable to assume restaurants will pass the costs to the consumer. As we’ve argued many times, low wages help the economy more than they hurt it.

“The index for meats, poultry, fish and eggs has risen 7.7 percent over the span [last year],” says the BLS. “The index for food at home increased 0.7 percent, its largest increase since July 2011. Five of the six major grocery store food group indexes increased in May. The index for meats, poultry, fish, and eggs rose 1.4 percent in May after a 1.5 increase in April, with virtually all its major components increasing,”

This is an example of bifurcated inflation we wrote about a few months ago, because treasury yields are still rock bottom even as real prices for important things such as food, gas, healthcare and tuition keep making new highs with no end in sight. As long as global growth keep booming, stocks keep going up, and interest rates never go up again, we anticipate this trend will continue.

An interesting article from The American Conservative about the impossibility of being on the right side of history.

If you had interrupted a Francis Galton lecture on the new “science” of eugenics and asked whether he was on the right side of History, what do you think he would have said?

He would have said yes, obviously. But maybe in retrospect he will be vindicated if eugenics makes a resurgence, which I at least predict it will in the next 50 or so years. China, for example, is investing heavily in technology that can be used for eugenics without the same restrictions that U.S. scientists would face. It can take a very long time to judge if one is one the right side of history – sometimes forever.

At the start of the year, economists were optimistic. Perhaps the economy would grow 3% this year, they said, instead of the measly 2% pace it’s been stuck at for the prior three years.

The difference between 3% and 2% growth is meaningless, according to Wall St. Looking back, if you plot economic growth with stock prices, there is pretty much no correlation. Same for profits and earnings, dividends, buybacks, or mergers. GDP growth tells us surprisingly little about the present or future state of the economy. It’s just noise